The 69th Xi Xian Forum, sponsored by the Center for International Cooperation and Disciplinary Innovation of Income Distribution and Public Finance at the Zhongnan University of Economics and Law (ZUEL) and the university's School of Public Finance and Taxation, was successfully held on December 20, 2024, in Wenqin Building's Conference Room 119. The keynote speaker for this academic forum was Bao Renjie, a PhD candidate at the Department of Economics at Princeton University, who delivered a lecture titled "Strategic Innovation and Business Entry." The forum was moderated by Associate Professor Zhang Ziyao. Over 20 participants attended the forum, including Professor Ye Jingjing and Professor Zhao Ying from the School of Public Finance and Taxation, Professor Rong Zhao from the Wenlan School of Business, and researchers Lin Jiada, Wan Qian, and Zou Wei from the Center for International Cooperation and Disciplinary Innovation of Income Distribution and Public Finance.
During the forum, Bao Renjie provided an in-depth analysis of how corporate innovation shapes market power, presenting an endogenous growth model that includes oligopolistic competition and two types of innovation mechanisms. This model encompasses the quality ladder innovation characterized by knowledge spillover effects and the contemporary productivity innovation marked by a lack of spillover effects. Bao Renjie particularly highlighted the "killer innovation" phenomenon where industry leaders strategically over-invest in productivity innovation to crowd out new competitors and reduce market competition. His quantitative model predicts a negative correlation between profitability and the number of new entrants into the market, a trend that is reflected in changes in both supply and demand. Additionally, his research found that large enterprises tend to over-invest, while small enterprises tend to either under-invest or choose not to enter the market at all. By comparing actual data with model predictions, Bao Renjie analyzed the decline in the fixed costs of innovation and the increase in the difficulty of innovation, as well as the reasons behind the growing strength of products on the market. He noted that greater market power incentivizes more enterprises to pursue quality innovation in the hope of becoming market leaders, thus achieving higher market power and product premiums.
During the policy discussion segment, Bao Renjie proposed that imposing a 10% profit tax on existing enterprises could potentially enhance social welfare by 5.3%. In contrast, offering a 10% entry subsidy might attract inefficient innovators into the market, which could ultimately result in a loss of economic welfare.
At the conclusion of the forum, Bao Renjie summarized his analysis, explaining how superstar companies are increasingly dominating the margins of productivity intensity and scope through strategic innovation. This pattern of productivity distribution and the rise of superstar companies result from the over-investment of superstar companies that enhance their profitability by leveraging their productivity and scale, while other companies either under-invest or choose not to enter the market at all. This finding offers new insights into the behavior of enterprises and market structure, providing significant reference value for policymakers.
Bao Renjie delivered a captivating speech that not only engaged the audience but also sparked deep reflections on corporate innovation among the attending faculty and students. During the discussion segment, participants eagerly contributed their thoughts, engaging in a broad exchange of ideas surrounding issues related to the behavior of enterprises and market structure.
Guest Profile
Bao Renjie is a PhD candidate at the Department of Economics at Princeton University. His research focuses on industrial organization theory and behavioral economics, with a current emphasis on analyzing irrational human behavior (such as internet addiction) using structural models, as well as corresponding policy measures. His other interests include market power and spatial economics. His research results have been published in academic journals such as Games and Economic Behavior and Economic Research Journal, with additional working papers currently under review at the Review of Economic Studies R&R.